What I will describe here will work only on Internet Explorer. Because it is using an ActiveXObject which is not available in other browsers other than IE.
I know just one way to make Word Mail Merge to work cross browser and that is to implement this in code behind in C#, you can find an article about that on Microsoft's support page: http://support.microsoft.com/kb/301659.
I will probably also make a C# version of my own, if I have a good solution I will post it on the blog.
This function will merge the Label Template document with the datasource file.
The paths here are not passed by parameters because this is just an example or an idea, for you to have an working example and to know from where to start.
The datasource will look like this:
Note that the delimiter is comma - "," this is why if you will need to have comma inside a label value you will need to put that value inside double quotes like this: "My Te,st Value For extremedev, with comma inside".
The resource that helped me a lot when creating the above function is: http://msdn.microsoft.com/en-us/library/ms254954(v=Office.11).aspx
If you have some ideas or suggestions for Word Mail Merge then do not hesitate to leave a comment - this will help others.